As revenues continue to squeeze due to pressure on fees from competitors and regulators, asset managers must adapt or perish. This natural selection process within the Assets & Wealth Management industry will be driven by disruptive technology across all activities in the value chain.
Changing demographics are predicted to increase available assets for investment while shifting the investor base from the developed world to the emerging economies. Despite the recent growth in assets under management, a report by BCG reveals that in 2016 asset managers’ revenues and profits fell worldwide.
This divide between market growth and declining revenues can be bridged by incorporating advanced technologies such as artificial intelligence, big data and predictive analytics. Successful implementation of these technologies has the potential to reduce costs and improve both client engagement and investment decisions.
Technology driven decision making
Asset managers are likely to remain the ones who make the final investment decision, yet technology will become dominant in every step along the value chain. Predictive analytics, artificial intelligence and big data will drastically change the investment research process. AI driven research can monitor and analyse financial and nonfinancial data as well as supply chains. Predictive analytics is set to simplify risk management. The use of cloud computing and advanced algorithms to run complex risk models and calculating risk ratios under various scenarios improves decision making in a volatile environment.
As yields decrease, it is imperative to cut costs. Asset managers ought to seize opportunities to automate in-house operations or outsource some activities to third-party providers. Research teams, back offices and other support departments should become leaner. RegTech has the capacity to reduce compliance costs by automating the process and possibly alerting firms on potential hurdles. Tax, privacy and other types of reporting required by the regulator need to be considered under the automate/outsource scope.
The growth of both population and available assets in the developing markets allows asset managers to tap into new pools of potential revenue. In order to successfully attract digitally oriented segments of the population, asset managers must adopt social media, mobile applications and other platforms as part of their strategy.
Applying big data techniques on those platforms enables asset managers to collect behavioural information and identify patterns. This can both generate new leads and offer existing clients personally tailored products and services.
Overall, adapting technology is the key to success in a fast changing landscape. Technology must be integrated within every area, yet in order to do so, asset managers must be able to identify it and understand how it can be incorporated in new business models.
By Guy Tocker, Research Analyst at Holland FinTech.